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Consider the following problem with asymmetric information in the credit market. Suppose the lending interest rate(r1) is2%, and the borrowing interest rate(r2) is6.1%. What fraction

Consider the following problem with asymmetric information in the credit market. Suppose the lending interest rate(r1) is2%, and the borrowing interest rate(r2) is6.1%. What fraction of borrowers will default on theirloans?

A.

3.9%

B.

96.1%

C.

5.9%

D.

94.1%

E.

None of the above

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